If Spain were cut to junk some index-tracking investors would be forced to sell its bonds, adding to upwards pressure on yields. That would in turn push the country's financing costs - already approaching levels seen as unsustainable - higher.

"Spain is teetering on the edge of investment grade status and the risk in the near term is that investors begin to trade the risk they are cut to speculative grade," said ING's head of investment grade strategy Padhraic Garvey.

"And if they do get cut further then you'll get another wave of selling."

Spanish banks were large buyers of their sovereign's debt earlier this year, absorbing bonds sold by international investors, but with the banks under increasing pressure it is unclear how much capacity they have to shore up the government.